Diamond Joe Gutnick, Murray Huberfeld and David Bodner

October 30, 2000 – Gutnick, Huberfeld, Bodner…. History

Little has changed in the Jewish geography of ‘entrepreneurs’ who have managed to remain unscathed despite charges of all manner from illegal stock trading to laundering money. We are piecing together a history of investor money simply vanishing, diamonds being moved from one place to another and title to documents placed in the names of family members and friends so as to avoid personal liability. We believe that these men are holding the keys to a fortune in investor money. It is just a matter of finding it..

BARRONS –

Unholy Gains

When stock promoters cross paths with religious charities, investors had best be on guard

AUSTRALIA IS FAMOUS for its audacious entrepreneurs. And one of the boldest these days is Joseph I. Gutnick. As a promoter of some of the largest gold mines in the outback, Gutnick, 48, has amassed a fortune once estimated to be as high as $450 million. With the help of Chase Manhattan, Gutnick is now trying to get investors to put $500 million into a hedge fund he plans to run. And only weeks ago, he told the Sydney Morning Herald that he intends to move as much as half his business interests to the United States.

Gutnick’s fame is not limited to the financial pages. As president of the Melbourne Demons, the oldest team in the Australian Football League, he has contributed millions to keep the team solvent. He’s also a heavy political donor, not just in his home country but also in the political tinderbox of Israel. It was there that Gutnick earned worldwide notice in 1996, when he helped secure the election of hawkish Prime Minister Benjamin Netanyahu.

Gutnick may be most revered for his charitable work. An ordained rabbi, he has supported religious projects worldwide-particularly those of the ultraorthodox Lubavitch Hasidic movement, whose Yiddish-speaking members gratefully call him the goldener rebbe, or the golden rabbi. Once asked his formula for getting rich, Gutnick replied: “According to Jewish law, if you give to charity, that is a formula for receiving God’s blessing.” But some of Gutnick’s business dealings with religious charities raise uncomfortable questions. ABarron’s investigation found that several charities traded heavily in stocks promoted by Gutnick. Although the charities profited, other investors were left with heavy losses.

In addition, Gutnick has had dealings with Nachum Goldberg, who is currently serving five years in an Australian prison for tax evasion that involved charities. Another individual with ties to Gutnick is Judah Wernick, who is now awaiting trial for stock manipulation in New York. Barron’s has found that Wernick used religious charities to finance his ventures and manipulate stocks.

In some of the cases Barron’s reviewed for this story, stocks were bid up to dizzying heights before the charitable organizations got out, leaving other investors with millions of dollars in losses when the stocks dropped sharply. Several charities contacted byBarron’s said they have done quite well investing in penny-stock deals, but they profess no knowledge of manipulation or of how much their so-called benefactors may have made on the deals.

Although Australian securities regulators have investigated Joe Gutnick for half his career, Gutnick has never been charged with any crime. Last year, however, an Australian federal judge did slap Edensor, Gutnick’s family holding company, with a $19 million penalty for what the judge deemed “deceptive and misleading” treatment of public shareholders of a company Gutnick controlled. The case is on appeal. Over the course of two and a half months, Barron’s repeatedly asked Gutnick for help in understanding his involvement with the deals uncovered in our reporting. But despite his proven appetite for publicity in other areas, Gutnick did not answer us.

Mining the stock market

The son of one of Australia’s leading rabbis, Gutnick began his career studying at the Brooklyn rabbinical seminary of the Lubavitchers before returning to Melbourne in 1976 to work in a textile business owned by his wealthy father-in-law, Max New. By 1979, with gold prices perking up and Australia’s stock market rising, Gutnick began trading with $22,000 in borrowed money. Gutnick proved an adept investor and promoter, turning his small grubstake into $45 million, according to Diamonds and Demons, a recently published authorized biography of Gutnick by Australian journalist David Bernstein. (All dollar figures in this story are U.S.) By his own account, Gutnick made more money mining the stock market in the 1980s than by mining the earth. He dealt mainly in thinly traded mining stocks, and at one point he managed three mutual funds that traded in the very stocks he was promoting to other investors.

The stock market crash of 1987 brought Gutnick’s self-described paper shuffling to a halt and nearly broke him. He was rescued by $54 million in loans from a bank owned by the Australian state of Victoria. Some years later, the bank wrote off a substantial portion of those loans as losses.

But Gutnick had even grander backers than the government. In the motif of a Hasidic miracle tale, the leader of the Lubavitchers, the late Rebbe Menachem Mendel Schneerson, predicted several times that Gutnick would discover gold and diamonds in Australia’s desert. Indeed, those predictions were mentioned in a video shown at New York brokerage houses such as Datek Securities and Bishop Rosen as part of the 1993 U.S. road show promoting the shares of Gutnick’s Great Central Mines. On the video, Gutnick said the rebbe foresaw a discovery “worth billions of dollars.” With this blessing from the rebbe, the shares, trading in the U.S. as American depository receipts, surged from 5 to 14.

One beneficiary of this rise was Colel Chabad, a charity promoting religious education, which owned 1.5 million shares in Great Central before the offering of ADRs to U.S. investors. A month after the U.S. offering, by which time the shares had fallen back below 10, Colel Chabad had vanished from the shareholder rolls. This indicates that the charity sold some or all of its shares at or near the peak. “They were one of the lucky ones,” Gutnick told his biographer with a smile. Gutnick’s mine never did produce diamonds, but it did prove one of Australia’s richest gold producers. After the initial run-up, shares of Great Central Mines bounced between 4 and 10 until the price of gold began to slip in 1997. Last year, Gutnick teamed up with another mining company to buy out Great Central’s public shareholders at 95 cents a share. Gutnick’s family holding company, Edensor, was promptly sued by the Australian Companies and Securities Investments Commission for misleading public investors. An Australian federal judge socked Edensor with a $19 million penalty. Gutnick is appealing the ruling.

Among the other Gutnick stocks whose prices rose on heavy trading in their U.S. ADRs were Astro Mining , Centaur Mining & Exploration and Johnson’s Well Mining . But Gutnick’s two biggest successes were Quantum Resources and Mount Kersey Mining , which between 1991 and 1997 rose 64,900% and 28,640%, respectively. These and other companies — a few of which actually showed operating profits — made Gutnick one of Australia’s wealthiest men. Gutnick has enjoyed his wealth, too, owning a yacht, flying in a private jet and chauffeuring his wife and 11 children in a fleet of Rolls Royces and Bentleys.

Not surprisingly, Gutnick wields political influence in his home country. A generous supporter of Australia’s two leading political parties, he is on a list of business leaders who are briefed on government economic policy. Australia’s former prime minister, Bob Hawke, sits on the board of Gutnick’s Quantum Resources and has helped promote Gutnick’s hedge fund.

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Money Machine

When it comes to cultivating religious charities, and drawing them into stock deals involving tiny companies, Murray A. Huberfeld and David B. Bodner seem to be without peer. “Mssrs. Huberfeld and Bodner are among the top philanthropists in the Jewish world,” says Rabbi Irwin G. Katsof, executive vice president of the Jerusalem Fund of Aish HaTorah in New York City. “There are organizations waiting in line to see them.”

Bodner and Huberfeld run Broad Capital, one of the leading outfits for funneling investments into small publicly-traded companies with scant operating histories (“Let’s Make a Deal,” Barron’s, June 26). With green marble floors and lush cherry paneling, their offices high above Carnegie Hall project an image of prosperity and propriety. But appearances can be deceptive. In fact, this pair, both former stockbrokers at Datek Securities, got booted from the brokerage industry after their 1990 arrest for sending imposters to take the broker’s license exam on their behalf. In 1992, each pleaded guilty to a misdemeanor charge. Broad Capital is not a brokerage firm, but rather does its investment banking business on the unregulated fringes of the securities industry. And Bodner and Huberfeld’s regulatory history doesn’t suggest loving kindness. In 1996, Huberfeld settled administrative charges with the Securities and Exchange Commission, without admitting or denying guilt, that he had fraudulently promoted a mining stock. Then, in 1998, the pair disgorged $4.6 million to settle SEC charges, again without admitting or denying guilt, that they’d gotten shares of another stock illegally from a company director.

Among the investors in stocks promoted by Broad Capital in the past six years are some three dozen religious charities, accounting for 18 million shares valued at $66 million when they were registered with the SEC for sale to the public. One charity that’s been enriched by these deals is the Jerusalem Fund of Aish HaTorah, a religious education charity that has been popular with showbiz celebrities, including Larry King and Kirk Douglas. Rabbi Katsof says his organization lacks the resources to hire professional money managers, so it relies instead on a board member to review its investments. But when it comes to investing in small stock deals, Bodner and Huberfeld seem to call the shots.

“We trust David Bodner and Murray Huberfeld,” he said when asked how the charity came to invest in Multimedia KID, a Broad Capital deal. He added that he knew nothing of the duo’s past problems with regulators. Questioned about another Broad stock called Sensar, he said, “Mssrs. Huberfeld and Bodner gave us the opportunity to invest in this company… . Their deals have worked, as far as I know.”

He should know. As it turns out, Rabbi Katsof has personally invested in at least seven Broad Capital stocks, several of which stocks turn up in the coffers of the Jerusalem Fund as well. In two Broad Capital stocks, Emerging Vision and Jenkon International, Katsof personally held shares worth more than $1.2 million at the time they were registered for sale to the public. Indeed, he received $630,000 worth of those shares as a finder’s fee for helping to put Multimedia KID , an Israeli company, in touch with Jenkon International, the U.S. shell company it subsequently merged into. Through such a merger, a company can become publicly traded without disclosing as much about itself as it would have to if it chose the more typical route, an initial public offering.

After our interview with Rabbi Katsof, he did not respond to e-mails, faxes and other messages asking about his personal investments in stocks promoted by Broad Capital. Bodner and Huberfeld, through their attorney, reject any suggestion of impropriety.

Large pieces of Bodner and Huberfeld deals also turn up in the hands of obscure non-profit entities, like the Ezer M’Zion Organization and the Ace Foundation. Ezer M’Zion is an Israeli charity with its New York location in David Bodner’s home. The Ace Foundation is a private philanthropic foundation with the Brooklyn address — and initials — of Aaron Elbogen and his wife Chaya. As it happens, Elbogen was the Datek Securities principal who prosecutors claimed set up the exam scam that got Bodner and Huberfeld in trouble. The charges against Elbogen were later dropped. He did not respond to requests for comment.

Datek Securities, it should be noted, is the former parent of Datek Online Holdings, the well-known online broker. Two years ago the two firms split, allowing Datek Online to shed the parent company’s lengthy disciplinary record.

— B.A.

Mystery in Brooklyn

By his own account, Joseph Gutnick in the 1980s had many levers to pull when it came to promoting his stocks, including three mutual funds he ran and a maze of companies he controlled. In the 1990s, Gutnick’s stocks found different champions. In addition to institutional investors, key support for Gutnick’s stocks began flowing from the U.S. Specifically, according to Gutnick’s authorized biography, the money came from the Hasidic communities in Brooklyn.

Consider the Jacobs family. For the past 15 years, the Jacobses, members of the ultraorthodox Satmar Hasidic sect, have run Allou Health & Beauty Care out of a warehouse in Brentwood, on New York’s Long Island. Traded on the American Stock Exchange, this distributor of personal-care products last year had revenues of $421 million and a profit of $15 million.

Another Jacobs enterprise, Ever Ready First Aid & Medical Supply, makes first-aid kits in a graffiti-scarred industrial building at 385 Union Avenue in the Williamsburg section of Brooklyn.

Investing in Australian stocks also appears to be a family sideline. Asked about this, Herman Jacobs, the 42-year-old president of Allou, was dismissive: “I’ve traded Joe Gutnick’s shares. I lost money on them.” Jacobs, who sometimes uses his family’s original name, Jacobowitz, grew frustrated when we asked about Whiting Inc., a Bahamas-registered corporation that listed the 385 Union Avenue address as its headquarters in Australian legal documents. He insisted he has no connection to Whiting: “I’ve made some investments. What’s the difference what investments I make? I can assure you one billion percent, Whiting has nothing to do with Herman Jacobowitz. Zero!”

Before the 1997 slump in gold prices, Whiting controlled more than $40 million worth of Gutnick stocks, including shares in Johnson’s Well Mining , Mt. Kersey Mining and Quantum Resources . Australian securities regulators say they suspect that Whiting was actually a vehicle for manipulating the shares of Gutnick stocks. Gutnick didn’t respond to written questions from Barron’s about Whiting. Two years ago, when Whiting faced a $10 million margin call on stocks it held in an Australian account at Prudential-Bache, none other than Herman Jacobs injected additional shares of Gutnick stocks into Whiting’s account in an attempt to stave off liquidation. So says an affidavit notarized by an Allou employee and filed as part of Whiting’s lawsuit in Melbourne against Prudential-Bache seeking to block the margin call. Also injecting equity into Whiting was another Bahamas corporation, Zarf Inc. Judging from the fax transmission stamps visible on documents in the lawsuit, Zarf and Whiting share a fax number. Barron’s traced the location of that fax number to Herman Jacobs’ Brooklyn home.

Presented with these connections, Herman Jacobs fumed, “You’re making what’s called in Yiddish, it’s called a chawlent . You’re mixing in everything in one pot. Apples and oranges and nectarines and potatoes together.” After being sent copies of the Whiting affidavit and related brokers’ statements by overnight mail, Jacobs said that a man named Jacob Schwartz, who is identified as Whiting’s corporate secretary in the affidavit, once rented office space from him at 385 Union Avenue. Jacobs added that Schwartz called on him for favors, asking Jacobs if he could receive faxes for him and prevailing on an Allou employee to notarize documents. Jacobs says he no longer knows Schwartz’s whereabouts. Jacobs does not deny that he himself transferred shares of Gutnick stocks into the Whiting account, though he says he sold them to Whiting. As for Schwartz, Jacobs says, “I would like to find this guy today.”

Jackson, had you known about the 2000 connections? This is not repackaging old posts, this is leading to a series of patterns that will arrive at a point in time. There are 1000’s of people who lost money from the Bodner/Huberfled schemes and each one is like a serial pattern of collecting investors, liquidating the assets underlying the investment and then leaving the investors with nothing. It has been going on for years, nothing new. The only way to get there is to provide an historical context.